Short sellers and derivatives traders are betting Deutsche Bank's share price recovery will prove temporary, with data suggesting short interest in the German lender is the highest of any global bank. Germany's largest bank saw its shares slump to near record lows last week after a credit rating downgrade, reports the US regulator viewed it as "troubled" last year and upcoming results of US stress tests.
Supportive comments by European Central Bank sources on Friday have helped Deutsche shares rise 6 percent off recent lows, while the yield on its 1.75 billion-euro CoCo bond, the most junior debt category, has slipped 200 basis points from last Thursday's 15-month high of 9.24 percent. But the bank is still in the sights of short sellers, who borrow stock in order to sell it, with the aim of buying it back at a cheaper price and pocketing the profit.
Nearly $1 billion of Deutsche stock is currently out on loan - a key indicator of short interest and the highest of any global bank in dollar terms, according to data provider FIS Astec Analytics. Deutsche is also the most borrowed stock on Germany's blue-chip DAX index, according to Markit, another data provider. Around 5 percent of Deutsche stock is currently out on loan, its highest level in more than a year.
Funds with short positions in Deutsche include Marshall Wace and AQR Capital Management, according to regulatory filings. Both firms declined to comment on the rationale behind the position. Several bankers and brokers doing business with Deutsche told Reuters they were monitoring key stress indicators, especially short interest on Deutsche, but were not overly concerned. "Don't get me wrong, the Deutsche situation is worrying - I'm watching the shorting interest closely - but nothing where we need to take action yet," said a senior investment banker at a rival lender that does business with Deutsche.
Meanwhile, options markets show traders continue to hedge against further share price falls on Deutsche. The open interest put/call ratio - a gauge of how many options are in existence that give the right to sell a stock as opposed to buy it - was 1.28 on Tuesday.
The ratio can be volatile, but on a one-month average the ratio stands at 2.23, exceeding a peak during May 2014 and approaching levels not seen since the 2008 financial crisis. "Anything above 1 is indicative of bearish sentiment - people are buying more puts than calls - so the numbers at the moment suggest increased bearishness in the short term," said Chris Beauchamp, an analyst at options trading platform IG Group.
An option allowing investors to speculate on Deutsche's share price falling as low as 6 euros by December - more than a third below current levels - surged in value last week. Contracts speculating on the bank's share price falling through 8 and 9 euros in the next two months have been among the most traded options over the last week.
NOT ALL GLOOM However, short interest may be elevated because of the bank's annual dividend - often so-called arbitrage investors short a stock during dividend payments. Such positions are not necessarily a bet against the company. The high level of "fear" in the options market could also be an indication sentiment has become too negative, and may present an opportunity to buy the shares, Beauchamp said. Two investment bankers who run bond sales for European borrowers pointed out Deutsche still manages a lot of business across Europe. Both bankers frequently work on bond deals alongside Deutsche.
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